Category: NY Practice

Can a debtor obtain declaratory judgment shielding himself from liability to a creditor’s officers or associates personally and then use that judgment to preclude subsequent claims by the creditor itself? Not in the First Department, following the recent decision in Avilon Automotive Group v. Leontiev.[i] In Avilon, a unanimous panel reversed the res judicata-based dismissal of fraudulent transfer and other related claims arising from several Russian loan transactions because the claims by the creditors themselves were not the subject of a prior declaratory judgment concerning the debtor’s liability to the creditors’ representative.Avilon_Auto._Grp._v._Leontiev.pdf

In 2017, the New York legislature amended CPLR 503(a) to provide for venue in “[(1)] the county in which one of the parties resided when it was commenced; [(2)] the county in which a substantial part of the events or omissions giving rise to the claim occurred; or, [(3)] if none of the parties then resided in the state, in any county designated by the plaintiff.” Before the amendment, CPLR 503(a) did not provide for venue based on where the events or omissions giving rise to the claim occurred.

In an opinion in Liberty Petroleum Realty, LLC v. Gulf Oil, L.P., dated August 2, 2018, the Appellate Division, First Department reversed the Supreme Court’s protective order prohibiting the deposition of an attorney in a commercial case.[i]

On July 2, 2018, Justice Barry R. Ostrager of the Commercial Division denied a motion to dismiss by UMG Recordings, Inc. (“Universal”), an alter ego theory of liability against it in Aspire Music Group, LLC v. Cash Money Records, Inc., concluding that Aspire sufficiently alleged that Universal was the equitable owner of Cash Money to survive the pre-answer motion to dismiss.

In a decision issued last month in Gowen v. Helly Nahmad Gallery, Inc., No. 650646/2014, 2018 NY Slip Op 28142, 2018 BL 164601, Commercial Division Justice Eileen Bransten found personal jurisdiction over foreign defendants in an action brought by the estate of a Jewish art dealer to recover a valuable painting plundered by the Nazis in occupied Paris. Justice Bransten further held that New York’s substantive law applies to the dispute over the painting’s ownership, proclaiming that “New York markets are not now, and shall not become, a safe harbor for the fruits of property pillaged during the course of the Nazi genocide.” Beyond its compelling subject matter, the opinion provides useful guidance for plaintiffs considering pleading jurisdiction over non-domiciliary defendants on an alter ego theory.

On Wednesday, June 20, 2018, Patterson Belknap Webb & Tyler LLP welcomed Associate Judge Michael Garcia of the New York Court of Appeals, and Professor Patrick M. Connors, author of the New York Practice treatise, for a continuing legal education program on litigation practice in New York courts. Patterson Belknap partners Stephen P. Younger and Muhammad U. Faridi, authors of the New York Commercial Division Practice Guide, also participated with Mr. Younger moderating a discussion of New York practice issues and Mr. Faridi serving as a panelist.

Attorneys drafting forum selection clauses were reminded of the distinction between permissive and mandatory forum language in Justice Andrea Masley’s recent decision, Duncan-Watt et al. v. Rockefeller et al., No. 655538/2016, 2018 BL 138448 (Sup. Ct., N.Y. Cty. Apr. 13, 2018). In Duncan-Watt, the Commercial Divisionruled on Defendants’ motion to dismiss by holding that the dispute resolution clause in the parties’ licensing agreement failed to select Australian courts as the exclusive forum in which to litigate any disputes. As a result, the Court concluded that the contractual language at issue only reflected the parties’ consent to jurisdiction in Australia—not that the dispute had to be litigated there.[1]

On February 8, 2018, Justice Shirley Werner Kornreich of the Commercial Division rejected a disclosure-only class action settlement in City Trading Fund v. Nye, 2018 BL 44689 (Sup. Ct. Feb. 08, 2018). The settlement provided for additional disclosures to shareholders in a proxy statement plus $500,000 in attorneys’ fees and expenses for plaintiffs’ counsel. As discussed below, the Commercial Division’s rejection of this disclosure-only settlement is one of the first applications of the First Department’s new standard for reviewing such settlements of merger challenge litigations.

In a wave of rulemaking activity over the past week, the Office of Court Administration opened public comment on three significant changes to the Commercial Division Rules proposed by the Commercial Division Advisory Council. The proposed rule changes would affect three major phases of commercial litigation: document discovery, evidentiary hearings, and motion practice. Each proposed rule change aims at enhancing the efficiency with which parties litigate in the Commercial Division.

On January 31, 2018, the Appellate Division, Second Department affirmed, in a 3-1 decision, the Kings County Supreme Court Commercial Division’s decision, denying 159 MP Corp. and 240 Bedford Ave Realty Holding Corp.’s (collectively the “Tenants”) motion for a Yellowstone injunction. The case raised an issue of first impression for New York appellate courts: whether a written lease provision that expressly waives a commercial tenant’s right to declarative relief is enforceable at law and as a matter of public policy. The Second Department ruled in the affirmative for both.

The Westchester County Commercial Division has launched a new state-of-the-art courtroom at the White Plains Courthouse. The Integrated Courtroom Technology (ICT) part is outfitted with high-tech features designed to ease the handling of complex commercial cases and enhance the presentation of evidence.

A shareholder bringing a contested derivative claim in the Cayman Islands must seek leave from the court before proceeding. This litigation prerequisite -- imposed by Rule 12A of the Rules of the Grand Court of the Cayman Islands (“Rule 12A”) -- requires a prima facie factual showing, with the aim of protecting corporations from “vexatious or unfounded litigation.” But when a Cayman Islands-related derivative claim is brought in New York’s Commercial Division, does the same rule apply? The New York Court of Appeals recently answered “No,” holding in Davis v. Scottish Re Group Ltd. that Rule 12A is a procedural rule that does not apply to matters litigated in New York courts.

Patterson Belknap Webb & Tyler LLP announced on November 20, 2017, the publication of its New York Commercial Division Practice Guide. This new publication is part of Bloomberg Law's Litigation Practice Portfolio Series, and an excerpt is available to download at: http://on.bna.com/H1KM30gCY7v. The guide is organized into various chapters drafted by Patterson Belknap lawyers, containing useful information about litigating in the Commercial Division of the New York State Supreme Court.

In Fidilio v. Hoosick Falls Productions, Inc., No. 654066/2016, 2017 BL 107640 (Sup. Ct. Mar. 22, 2017), Justice Eileen Bransten of the New York County Commercial Division granted a motion to compel arbitration of a dispute relating to a short-lived reality TV show, Scrappers. Justice Bransten ruled that the arbitration clause in one agreement between Frank Fidilio, the show's creator, and Hoosick Falls Production, Inc. ("Hoosick"), the production company, required arbitration of Fidilio's claims against Hoosick brought under another agreement which was executed at the same time, by the same parties, governing the same subject matter. Fidilio's remaining claims for breach of contract as a third-party beneficiary, unjust enrichment, and an accounting against Viacom International Inc. and the show's distributor, New 38th Floor Productions, Inc. ("New 38th"), were dismissed for failure to state a claim. Fidilio provides important lessons for parties considering mandatory arbitration clauses in connection with transactions involving multiple agreements, as well as for litigants considering whether claims may be subject to mandatory arbitration under provisions of related agreements.

In Norddeutsche Landesbank Girozentrale v. Tilton, No. 651695/15, 2017 BL 55790 (App Div, 1st Dep’t Feb. 23, 2017), a divided panel of the Appellate Division, First Department, affirmed a Commercial Division order that denied a motion to dismiss a $45 million fraud claim against Lynn Tilton, Patriarch Partners LLC (“Patriarch”), and two Patriarch affiliates, stemming from their management of two collateralized debt obligation (“CDO”) funds. Justices Richard T. Andrias and David B. Saxe dissented in part, opining that the majority should have dismissed the fraud claim as time-barred because the plaintiffs-investors were on notice of the alleged fraud more than two years before they filed suit.

In the past, a foreign bank’s use of correspondent bank accounts in the United States to facilitate wire transfers has not necessarily given New York courts a sufficient basis for jurisdiction over the bank. But a recent 4-3 Court of Appeals decision may change that. In Rushaid, et al. v. Pictet & Cie, et al., No. 180, 2016 BL 387923 (N.Y. Nov. 22, 2016), Judge Rivera writing for the four person majority (and overturning decisions of both the First Department and the Commercial Division) ruled that a foreign bank’s “repeated, deliberate” use of correspondent bank accounts in the United States is enough to establish New York jurisdiction.

In Ace Decade Holdings Ltd. v. UBS AG, No. 653316/2015, 2016 BL 413780 (N.Y. Sup. Ct. Dec. 7, 2016), Justice Eileen Bransten of the Commercial Division dismissed a $500 million fraud suit brought by an investment holding company incorporated in the British Virgin Islands, Ace Decade Holdings Ltd. (“Ace Decade”), against the Swiss Bank UBS AG for lack of personal jurisdiction and inconvenient forum. Justice Bransten found no basis to exercise jurisdiction over UBS for alleged fraud in connection with a financing deal negotiated in Hong Kong to purchase shares of a firm listed on the Hong Kong Stock Exchange. Justice Bransten further held that, even if the court could exercise jurisdiction over UBS, the causes of action lack a substantial nexus with New York and, thus, dismissal is also warranted based upon the doctrine of forum non conveniens.

On October 27, 2016, Chief Judge Janet DiFiore delivered a much awaited opinion in Justinian Capital SPC v. WestLB.[1] Judge Leslie Stein wrote a dissenting opinion, which was joined by Judge Eugene Pigott, Jr. Justinian involves the issue of champerty, which, as the Court describes, is “the purchase of notes, securities, or other instruments or claims with the intent and for the primary purpose of bringing a lawsuit.”[2] Under New York law, champerty is prohibited.[3] However, the New York champerty statute provides for a safe-harbor when the purchased asset has an “aggregate purchase price of at least five hundred thousand dollars.”[4]Justinian clarifies that this safe harbor only applies when either the party pays “the purchase price or [has] a binding and bona fide obligation to pay the purchase price.”[5] Put simply, at least $500,000 of the transaction must not be contingent on the litigation in order to fall within the safe harbor.

On October 11, 2016, in Matter of Skoler, 2016 BL 348290 (Sup. Ct. N.Y. Cnty.), Justice Lawrence K. Marks of the Commercial Division issued a decision regarding the strictures of judicial dissolution pursuant to Section 1104(a) of the New York Business Corporation Law (“BCL”). Petitioners sought judicial dissolution of County Group Inc. (“County Group”), a small, closely held New York domestic corporation. Petitioners hold 50% of the issued stock in County Group, and the “Responding Shareholders,” who opposed judicial dissolution, hold the remaining 50%. The Responding Shareholders cross-moved to dismiss the petition.

On October 4, 2016, Justice Singh issued an order denying a defendant’s motion to dismiss a claim for breach of a restrictive covenant, finding that the covenant serves an acceptable purpose. SeeTarro v. McOsker, No. 653880/15, slip. op. (N.Y. Sup. Ct. Oct. 4, 2016). The court also ruled that while it could not resolve a breach of fiduciary duty claim on a motion to dismiss, it would not entertain a new theory of duty that a plaintiff did not plead in his complaint.

When the winner of the 11th season of American Idol, Phillip Phillips, sang “I’m going to make this place your home” on his 2012 breakout single, “Home,” he may have been predicting the petition that he would later file with the California Labor Commission (“CLC”). In that petition, Phillips sought to void the talent management agreement that he was required to sign with 19 Entertainment, Inc. – one of the now-bankrupt companies behind production of American Idol – in order to participate as a semifinalist on the show. Following a September 23, 2016 decision by Commercial Division Justice Salinan Scarpulla staying 19 Entertainment’s suit against Phillips’ new talent manager pending resolution of the California proceeding, the CLC may be “home” for 19 Entertainment’s fight over Phillips for the foreseeable future.

About Our Blog

Patterson Belknap’s Commercial Division Blog covers developments related to practice and case law in the Commercial Division of the New York State Supreme Court. The Commercial Division was formed in 1993 to enhance the quality of judicial adjudication and to improve efficiency in the case management of commercial disputes that are litigated in New York State courts. Since then, the Division has become a leading venue for judicial resolution of high-stakes and every-day commercial disputes. This Blog reviews key developments in the Commercial Division, including important decisions handed down by the Commercial Division, appellate court decisions reviewing Commercial Division decisions, and changes and proposed changes to Commercial Division rules and practices. Our aim is to provide you with thoughtful and succinct analysis of these issues. The Blog is written by experienced commercial litigators who have substantial practices in the Commercial Division. It is edited and managed by Stephen P. Younger and Muhammad U. Faridi, who spearheaded the publication of the New York Commercial Division Practice Guide, which is part of Bloomberg Law's Litigation Practice Portfolio Series.